Friday 29 November 2019 10:41 am

Ocado shares soar on Japanese robot warehouse deal with Aeon

Shares in online retailer Ocado jumped more than 11 per cent today after it announced a deal to help Japanese retailer Aeon launch a new online business.

Ocado uses robot technology in its customer fulfilment centres (CFCs) to automate many processes.

Read more: Ocado to build sixth warehouse as online grocer accelerates growth

It said it would supply Aeon with CFCs and end-to-end software applications to serve millions of customers across Japan.

The agreement plans for the development of a national fulfilment network to serve the whole of the Japanese market, with expected sales capacity of around ¥600bn (£4.24bn) by 2030, growing to approximately ¥1tn by 2035. 

Aeon chief executive Motoya Okada said: “We see Ocado as a state-of-the-art, exciting and transformative partner aligned with our strategy of accelerating Aeon’s digital shift to serve Japan’s consumers.”

Shares in Ocado jumped 12.1 per cent to 1,354.5p this morning.

Aeon did not say how much it was paying Ocado, but said the agreement included an upfront fee, in addition to later payments, which will depend on performance.

Read more: Will the M&S venture with Ocado turn around its fortunes?

Ocado said it expected an additional £25m of operating costs in fiscal year 2020 to implement the service.

Chief market analyst for Neil Wilson said: “This is a big deal – Aeon is in the top 10 global retailers bracket and is among Asia’s largest retailers. This deal gives access to one of the world’s largest markets and with probably the best brand Ocado could have picked for entry into the Japanese market.

“Aeon’s footprint is especially large as it has a presence across multiple retail channels, from groceries and convenience to general merchandise. Another smart move by Steiner and co.”

Read more: Ocado sales accelerate after recovery from Andover factory fire

The latest data from market research firm Kantar, for the 12 weeks to 3 November, showed that Ocado was the fastest growing supermarket with sales up 13.5 per cent, outpacing all of the Big Four grocers and the German discounters.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “No one should be popping champagne just yet though. This is an exciting announcement, but the proof will be in the pudding. With a sales-based valuation more than double its long-term average, and no real profits expected any time soon, Ocado will have to wait for years to see if the current partnerships pay off.

“The warehouse fire earlier this year mean operational performance is still under the microscope. But if Ocado can keep its house in order this time, it may catch the eye of further partners, and that’s where future fortunes lie.”

“This just goes further in cementing Ocado’s place as a technology service provider after its previous deals in the US and Europe,” added Jasper Lawler, head of research at London Capital Group.

“This is the UK firm’s biggest foray into Asia and we’d expect the continent to be a big target for future growth.

He added that the dramatic rise is not just about Japan – but proof that Ocado’s business model of providing technology to retailers is working.

“It is about the multiple investors are willing to pay for a high growth tech firm over a retailer,” Lawler said. “The more tech deals Ocado can ink, the higher we would expect its P/E ratio to go.”